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UK competition law reform: a strengthened private actions regime

On 1 October 2015, the Consumer Rights Act 2015 brings into force a suite of wide-ranging changes to the UK’s competition litigation regime:

an expanded role for the CAT, including hearing standalone actions and the power to order injunctive relief;

the introduction of a new, limited opt-out and an amended opt‑in collective actions regime; and

a radical new system of Alternative Dispute Resolution to facilitate consumer redress through out of court settlements.

The significant financial and commercial implications of these reforms should be factored in to defence strategies from the outset of any investigation or alleged infringement, with these changes potentially leading to a noticeable increase in UK competition litigation claims (anticipated already by a recent expansion in the number of UK claimant-side law firms).

The reforms are the latest steps by government to strengthen the UK’s competition enforcement regime: key policy drivers being to prevent anti-competitive behaviour from stifling economic growth and enable those who have suffered loss to obtain redress quickly and fairly. The changes complement the major reforms to public enforcement introduced in 2014, when the Competition and Markets Authority was formed.

1. An enhanced role for the CAT

The changes introduced in the CRA 2015 are intended to make the Competition Appeal Tribunal the major venue for competition litigation in the UK, instead of the High Court. Previously, the High Court has had several perceived advantages, including its ability to hear standalone cases, grant injunctive relief and hear cases that otherwise might no longer be within the CAT’s jurisdiction time limits. Going forward:

standalone cases: the CAT will hear standalone, as well as ‘follow-on claims’ (claims brought after an infringement decision by a ‘relevant competition authority’);

injunctive relief: the CAT will be able to grant injunctions to stop anti-competitive activity, as well as award damages to those suffering loss;

extended limitation periods: in many cases, the applicable limitation periods are harmonised with those in the High Court, meaning that newly arising claims may be brought in the CAT within six years of the cause of action accruing, rather than two years from a regulatory Decision; and

fast-track for simpler cases: principally designed to benefit small- and medium-sized businesses, some claims will benefit from a new fast-track procedure enabling relief to be granted quickly and at a lower cost.

It is unclear at this stage, in particular, how widely used the fast-track procedure will be. The introduction of injunctive relief is, however, significant – and may be used, in particular, in abuse of dominance cases where dominant companies would face potential restraining orders.

2. Collective actions and collective settlements

The reforms that have been subject to most debate relate to the introduction of the limited opt-out and expanded opt-in regimes for antitrust damages cases, and the related collective settlement provisions. This regime might be regarded as a test case for future extension of opt-out collective actions to other areas or specified sectors.

Perceived failure of limited ‘opt-in’: Prior to the CRA 2015 coming into force, the CAT could hear opt-in claims (limited to claims brought by nominated consumer bodies) but could not hear opt-out claims. A lack of successful cases meant the opt-in regime was generally considered to have been a failure. It was only used in practice on one occasion, when the consumer body Which? brought the Replica Shirts case that settled in 2008.

Expanded opt-in: the opt-in regime has been expanded to broaden the range of potential class representatives to affected parties and genuine representative bodies, who would ‘fairly and adequately’ act in the interests of class members. Lawyers and funders are not excluded from being class representatives – but it is unlikely that they will be permitted to fulfil this role, save in rare circumstances.

Limited opt-out: under the new opt-out regime, UK claimants are automatically included in the action unless they opt-out in a manner prescribed by the CAT. The regime is limited in that non-UK domiciled claimants must actively opt-in. Also, damages-based agreements – a form of contingency fee arrangement that is now permitted under costs rules reforms in the UK – are not enforceable by claimants (unlike for opt-in actions). In each case, the CAT will determine whether an action is suitable for opt-in or opt-out.

Collective settlements: the CRA 2015 will introduce a power for the CAT to authorise collective settlements put forward by parties, both where proceedings have started and where no proceedings are under way. Parties will need to demonstrate that the settlement is ‘just and reasonable’, which may require disclosure to the CAT of supporting expert opinion. Any settlement will only be binding on non-UK domiciled claimants if they opt-in.

No punitive damages: the CAT is prohibited from awarding exemplary damages in collective proceedings. Unlike in US cases, where triple damages are a possibility, damages awarded in collective actions by the CAT must compensate for the actual loss suffered.

The collective actions measures go beyond the EU’s non-binding recommendation for EU-wide opt-in regimes by the end of 2016. This is further evidence of the UK government’s proactive approach in encouraging private enforcement of competition law.

3. Voluntary redress

A new voluntary redress mechanism will allow the CMA and sector regulators to certify schemes that enable consumers and businesses to claim compensation through the scheme without having to pursue litigation through the courts. The system is designed to appeal to both consumers and businesses seeking redress, and infringing companies seeking to mitigate loss and reputational damage.

Fine reductions of up to 20%: infringing businesses that agree, for example, to establish and fund an independent board to determine the level of redress to be offered to affected consumers will have the possibility of a fine reduction of up to 20 per cent under the final Guidance issued by the CMA.

Accepting redress precludes follow-on damages claims: consumers accepting this redress will be precluded from bringing follow-on damages actions. Accordingly, it is expected that an application for CMA or sector regulator approval of a voluntary redress scheme will be most attractive to businesses seeking to reduce longlasting contingent exposure to competition damages claims (including opt-out class actions), and who are currently under investigation for a competition law infringement and therefore can benefit from fine reduction (including in order to fund the operation of the scheme).

Uncertainty as to quantum: the benefits of voluntary redress will need to be balanced against some potential uncertainties. For example, as to the quantum to be determined by the independent board, the level of participation by affected consumers, the cost consequences of a consumer rejecting an offer and the residual risk of disclosure and use of documents prepared for the purpose of the scheme in later private actions (including in other jurisdictions).

While there are some similarities between the objectives of voluntary redress schemes and collective actions/collective settlement offers, including that they are both most likely to be used where infringements have caused diffuse harm, there are significant differences in purpose, timing, determination of quantum and representation. Consumers and businesses will, for example, only be able to opt into a scheme in their individual capacity.

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